What Surprising Factor is Behind Canada’s Economic Growth?

Family enterprises play a crucial role in the Canadian economy. A recently published report suggests that family enterprises are the most powerful driver of economic growth in Canada, generating $574.6 billion – which is almost half of Canada’s private sector GDP – and almost seven million jobs in 2017. This “first-of-its-kind” study in Canada was a collaboration between the Conference Board of Canada and Family Enterprise Xchange. This research helps us to better understand “[t]he economic impact of family owned enterprises in Canada.”

Family businesses exist in all sectors and communities, from the local farmer and restaurant owner, to international companies in agriculture, communications, and retail. “Family enterprises produce nearly 7 million jobs in Canada. Empirical research also confirms that these businesses account for approximately 65 per cent of the output and 90 per cent of the jobs generated by small and medium-sized companies, which are frequently described as the backbone of the Canadian economy and are essential to our supply chains.” Additionally, “[n]early 2/3 of all private sector firms in Canada are family owned.” 

Not only do family enterprises create jobs, invest in their communities, and give back to society, but it seems that they may experience more success than other firms. Family enterprises were also found to have longer growth and longevity than other firms, with total revenues growing 14.6 percent on average from 2007 to 2013. In contrast, other firms grew 13.9 percent on average during this same period. Of the firms that were operating in 2007, around 70 percent of the family enterprises were still in operation in 2013, compared to 65 percent of the other firms. Moreover, a  2018 study by the National Bank of Canada suggests that “family-controlled businesses demonstrate an ability to yield long-term returns over the span of generations.” They concluded that their sample of “family-controlled businesses from different industries and regions across the country outperformed the S&P/TSX Composite Index by 120.3% over a 10-year period.” 

Although the reasons why family firms achieve these successes are not well understood, experts believe that enduring family firms share common traits – such as long-term orientation and an ability to adapt – that allow them to stand the test of time better than non-family companies. 

“Over time, greater knowledge of family firm dynamics will help us to understand the unique challenges that these businesses face, and by extension their consequences for the broader economic base. And that in turn will facilitate improved educational support for family enterprises themselves.” Further, perhaps by identifying what enables these family enterprises to experience increased success, other organizations can also benefit from focusing on these same characteristics. 

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Author

Karen Macdonald and Viewpoint Research Team

Is Strategy Only As Good As Its Execution?

“Good idea, bad execution” is a saying all of us have heard on more than one occasion, but recently, we've been curious about understanding and defining what moves great ideas into great companies, or project, or achievements - i.e. what defines successful execution.

Largely attributed to Michael Porter’s work in the 1980s, there is now a clear and widely accepted definition of strategy. It is not surprising that organizations spend a vast amount of capital and time devising strategies to improve performance. However, an often overlooked extension of strategy is execution, of which, far less is known about in a practical sense. There is often some confusion surrounding what strategic execution involves, and how to enhance capabilities. Execution involves assessing firm capabilities, synchronizing people with strategy, and linking rewards to outcomes, making people accountable for the delivery of strategy.

While strategic execution is seemingly linked to “doing” in an organization, our client experiences support the notion that there is a need to go beyond simple understandings or productivity, efficiency, and the emulation of best practices. Evidence reveals that roughly two thirds of organizations struggle to implement strategy. In a study of 275 portfolio managers, the ability to execute strategy was found to be more important than the quality of the strategy itself. The inability to execute strategy has also been named a key reason for executive and company downfalls, with many observers recognizing that strategy gets you to the starting line, but it's execution that gets you to the finish line. It was T.S. Eliot who acknowledged the ‘knowing-doing’ gap in 1925, citing that “between conception and creation falls the shadow.” The best companies don’t necessarily always have the best ideas – they are good at implementation, converting the process of doing into an opportunity for learning. While it is not surprising that organizations spend a vast amount of capital and time devising strategies to improve performance, there is far less known about how to execute successfully.

Execution is best defined as the systematic process of rigorously discussing the ’hows’ and ‘whats,’ and tenaciously following through. In a sense, execution is the carrying out of a strategic plan, going beyond operational effectiveness and improvements, and subsequently linking strategy to all aspects of a firm’s activities. However, every organization can succumb to barriers of execution, particularly:

1. Lack of flexibility: When asked about the greatest challenge companies will face in executing strategy over the next few years, a third of managers cite difficulties adapting to changing market circumstances.

2. Ineffective leadership: A 2013 HBR study of nearly 700 executives found that only 8 percent of leaders are effective at both strategy and execution. This is also supported in our own work, whereby we studied successful characteristics of CEOs at a financial firm. Findings revealed that the top 10 CEOs by company returns across 20 years, were those that excelled in both strategy and execution.

3. Fear of failure and rejection: As “ego and fears of embarrassment prevent an objective and honest appraisal of performance”, execution can be hindered by team members’ insecurities and lack of confidence.

In order to better understand strategic execution, Viewpoint has teamed up with Mount Royal researcher Simon Raby and BIG, to research strategy and execution. If you are an organizational leader, entrepreneur, or somehow involved in strategy in your organization, consider participating in our survey. We'd love to learn more about your strategy and execution experience, and in return, you will have access to our findings and execution understandings.

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Author

Kelsey Hahn, Viewpoint Research Team

Is Organizational Purpose Just a Buzzword?

Over the last few years, there has been a growing interest in organizational purpose, which can be partially attributed to the increasing emphasis on sustainable business practices and efforts to curb climate change, declining trust in organizations, as well as younger workers searching for meaningfulness at work. With this increased focus on purpose, some organizations have been quick to incorporate it into their tagline or mission statements. But is purpose just a buzzword? And what is the difference between the seemingly similar terms of purpose, vision, or mission?

We know that purpose is important at both employee and organizational levels. On average, people spend over 90,000 hours at work over the course of their life, so it’s not a surprise that many are searching for meaning in their work. Consequently, purpose has been found to have a tangible impact on key employee outcomes. Research finds that those who perceive their work as higher in significance (job purpose) also tend to demonstrate higher performance. At the organizational level, having a clearly defined purpose can lead to a stronger firm financial performance, specifically in shareholder returns over a 10 year period, or in venture growth.

So, what exactly defines organizational purpose?

Organizational purpose has many definitions, including being “a concrete goal or objective for the firm that reaches beyond profit maximization”, or simply as “a company’s core reason for being.” However, all of the definitions point to an emphasis on the creation of value for all stakeholders, including shareholders, customers, and society in general. While some use the terms mission or vision somewhat interchangeably with organizational purpose, there is a distinct difference. Organizational purpose helps to guide and inform a company’s mission or vision. In other words, while a company’s mission statement or vision might shed light on what the organization is trying to accomplish, its organizational purpose explains the why.

If you are looking for a starting point for fostering organizational purpose, a recent article in Harvard Business Review has a few tips for how you can build in purpose to align your organization. First, consider your employees; with modern workplaces having unique compositions of full-time and part-time employees and contractors, it’s important to think of how each employee experiences their work. Second, consider how your organizational purpose is communicated and embodied in actions throughout the organization. Finally, consider the bigger picture when thinking of a purpose. In the modern workplace, broader societal impacts and sustainability are things that need to be considered.

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Author

Viewpoint Research Team

Why Do Businesses Fail, And How Not To Be a Victim

Around 20 percent of small businesses fail within their first year, with roughly 50 percent failing by the end of their fifth year. What makes these statistics interesting is that despite shifting economic factors, business failure rates remain relatively consistent. After surveying 101 failed startup businesses, a recent analysis revealed that 42 percent reported that the main reason for their failure was a lack of marketability. Businesses fail when they are not solving a marketable problem, or, “not solving a large enough problem that could be universally served with a scalable solution.” But what causes this so called lack of marketability? 
 
A business’s marketability is directly tied to its adaptability - its willingness to alter its models and operations in order to keep up in today’s rapidly changing and unpredictable global environment. Marketability also relates to the way in which a business balances its forces of exploration and exploitation, with exploration referring to the search for knowledge and innovation, and exploitation referring to capitalizing and expanding upon these new ideas found through the exploration process. Too much exploration can lead to a business becoming obsolete, while too much exploitation can result in a business falling behind the technological curve and losing its competitiveness.  
 
A good example of too much exploitation can be seen in the downfall of Sears due to its refusal to innovate and change its business model, ultimately leading to the end of Sears. At its peak in 1965, Sears was worth $92.1 billion in today’s money. That same year, its sales were 1 percent of the entire U.S. economy, with two-thirds of Americans shopping there in any given quarter and half the nation’s households owning a Sears credit card. Now, more than 50 years later, Sears has been fighting a losing battle against insolvency and erasure. Despite having the skills and resources necessary to adapt to the world of e-commerce, Sears lacked the foresight to anticipate and the willingness to adapt. This behaviour is often attributed to the “success trap”, in which companies stop exploring once they have reached a certain level of success, turning to exploitation - “becoming less innovative as they become more competent.” 
 
In contrast, successful businesses are those that strike a balance between exploration and exploitation, adapting to market changes by adjusting their balance accordingly. This balance can be seen in the incredible story of Viciki Hollub, the first female CEO of a major international oil company, and how she managed to turn around a company that had lost $1 billion in 2016 to a profit of $4.1 billion in 2018. Despite intense pressure from shareholders, Hollub’s company, Occidental Petroleum (Oxy), beat out Chevron to acquire Anardarko Petroleum for $38 billion. In addition to the dramatic Anardarko deal, Hollub has also proven herself committed to exploration, pledging to make Oxy carbon neutral through carbon capture technology. While Oxy’s investment in a carbon-neutral future may seem at odds with its recent deal, the balance between exploitation and exploration that Hollub has struck will serve the company’s marketability well in the long-term. By investing in exploration as well as exploitation, under Hollub’s leadership, Oxy is securing a social license and, “regaining society’s trust to operate with the approval of employees, shareholders, and the broader public”. 

Ultimately, the companies that succeed in 2020s will be those that prioritize learning and innovation: “Companies don’t fail because of changes in the environment, they fail because their leaders are either unwilling or incapable of dealing with said change.” 

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Author

Viewpoint Research Team

Are We Heading Towards Another Financial Crisis?

Our founder, Mac Van Wielingen, often refers to the 2008 financial crisis as a critical point, as it “exposed significant corporate governance failings and led many to question the role of business in society.” There was a failure in strategic risk management and oversight due to a loss of focus on client interests, obsessive short-termism, and excessive financial leverage. In 2010, Viewpoint Research Partners was founded to explore the challenges through conducting and curating research. A decade has passed since Lehman Brothers filed for bankruptcy, launching the world into a global financial meltdown. In a single day, more than $600 billion USD in assets were wiped out, and 25,000 employees lost their jobs.

So what has changed since then?

The road to recovery has been a tough one. It has taken years for unemployment to return to pre-recession numbers, which has increased disparity in wealth. Middle-class income in the U.S. has only recently reached $61,000 USD, the level before the recession. Policy changes and new regulations have been implemented in response to the instability and the abundance of financial fraud that occurred, resulting in more global bank stability.

Are we at risk of stepping down the same path again?

It seems that there are similar conditions brewing, with increasing public polarization, and the increasing trade tensions and corporate debt. “Ten years on from the 2008 meltdown, the global banking systems seems more resilient to shocks, corporate profits are generally strong, and the bull market trudges along. But that in itself is a dangerous situation.” While there is no punchy one-line answer, organizations can protect themselves from repeating history by focusing on long-term performance and sustainability, and being open to new ways of governing business.

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Author

Viewpoint Research Team